Shares in petrol forecourt retailer and recent IC buy tip Applegreen (APGN) have been suspended until September following news of the group’s intention to buy a majority stake in motorway service area operator Welcome Break. The transaction will take the form of a reverse takeover and primarily involves buying a 55.02 per cent stake in Welcome Break from Appia Group for €361.8m (£321m).
A separate agreement with the remaining 45 per cent stake owner, Arjun Infrastructure Partners (AIP), involves transferring to AIP an 8.6 per cent stake on completion of the deal. According to chief financial officer Niall Dolan, a remaining 50.1 per cent stake will give Applegreen greater “operational influence” over the enlarged company, as well as AIP the chance to invest further capital in the business. The monies received for the transferred stake will be used by Applegreen to part-fund the rest of the deal.
Although final financial details – including the overall value of the deal – have yet to be fully disclosed, it will be financed by a new debt facility of €300m and a proposed €100m equity fundraising. The final terms of that fundraise – including the issue price, the number of new ordinary shares and whether it will take the shape of a share placing or a rights issue – are all decisions still to be made. However, Mr Dolan told us that once an admission document is circulated next month, the fundraising will likely follow in quick succession.
The rise in debt will result in net debt of roughly 4.5 times cash profits on a pro-forma basis. But Mr Dolan is confident the group can afford to “extend itself” given how transformative the deal is. Welcome Break may bring with it a portfolio of 24 Motorway Service Areas, two Trunk Road Service Areas (TRSAs) and 29 hotels across 35 locations in the UK, but it is emerging from an “intense working capital phase”, so the enlarged entity is expected to be earnings accretive within the first year post-completion. This, along with projected cost synergies, should allow for “material de-leveraging” within the first couple of years. Mr Dolan said the group would be targeting net debt of “below three times cash profits”.
